Business Context and Reporting Period
This unaudited Form 10-Q covers New Jersey Mining Company, which appears to be the predecessor or filing entity associated with the requested Idaho Strategic Resources, Inc. record. The report covers the quarter ended March 31, 2020 and was filed May 15, 2020. The company operates the Golden Chest gold mine and New Jersey Mill in Idaho, with additional mineral properties and a 50% interest in Butte Highlands in Montana.
At March 31, 2020, 123,812,144 common shares were outstanding; 125,293,625 shares were outstanding at May 1, 2020. The company was classified as a smaller reporting company and non-accelerated filer.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $1.401 million | $1.145 million |
| Gross profit | $97,911 | $59,931 |
| Operating loss | $149,532 | $221,636 |
| Net loss | $162,189 | $223,122 |
| Net loss attributable to the company | $146,268 | $205,404 |
| Operating cash flow | $24,183 | $(99,121) |
| Capital and mineral-property expenditures | $737,650 | $36,208 |
| Cash provided by financing activities | $795,599 | $(90,712) |
| Ending cash and cash equivalents | $299,928 | $22,725 |
Gold sales were $1.401 million, consisting of $1.521 million of gold and $3,896 of silver revenue, less $123,761 of smelter and refining charges. Approximately 1,094 ounces of gold were sold. Cash cost was $1,072.83 per ounce and all-in sustaining cost was $1,198.39 per ounce, compared with $974.26 and $1,205.23, respectively, in Q1 2019.
At March 31, 2020, total assets were $11.451 million, including $916,215 of current assets. Total liabilities were $2.953 million, including $917,148 of current liabilities. Debt included $1.131 million of equipment and other notes payable, $198,710 of related-party notes, $860,000 of convertible debt and $25,000 of related-party convertible debt. Stockholders’ equity totaled $8.497 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased 22.4%, primarily from higher production from underground operations and higher gold prices.
- Gross profit increased by $37,980, while the operating loss narrowed by $72,104.
- Operating cash flow improved from an outflow of $99,121 to an inflow of $24,183.
- Investing cash outflows increased substantially because the company purchased the Alder Gulch property for approximately $751,101, including application of a prior $25,000 deposit.
- Financing cash flow increased due primarily to the issuance of $885,000 of convertible debt.
- Cash costs per ounce increased, while AISC per ounce declined modestly.
- Exploration expense declined as management prioritized Golden Chest production; professional services and general and administrative expenses increased.
- Long-term liabilities increased by approximately $789,616 from December 31, 2019, principally because of the new convertible debt.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that planned production, existing cash, equity sales and potential debt borrowings or restructurings are expected to provide sufficient liquidity for operations and contractual obligations for the next 12 months. This is a forward-looking assessment and remains dependent on production, gold prices and access to capital.
- The COVID-19 pandemic led to modified work practices, production procedures and schedules, maintenance practices and discretionary spending. Management warned that deferred production, additional costs and broader market effects could adversely affect results, although the ultimate impact was uncertain.
- The company processes concentrate for a single broker, H&H Metal. At March 31, 2020, 1,645 ounces of sold but unsettled gold remained exposed to changes in settlement prices, and the company had $276,491 of gold sales receivable from that customer.
- In February 2020, the company issued $885,000 of convertible promissory notes bearing 8% interest, maturing in February 2023 and convertible at $0.18 per share. The notes are secured by the Alder Gulch property and other unencumbered real property.
- In April 2020, the company sold 1,481,481 units for net proceeds of $200,000. It also received a $358,346 Paycheck Protection Program loan bearing 1% interest and maturing April 9, 2022; qualifying amounts may be forgiven.
- The company recognized a $9,537 equipment write-off in Q1 2020. Other non-cash charges included $135,533 of depreciation and amortization and $2,355 of asset-retirement-obligation accretion.
- Management reported no legal proceedings, senior-security defaults, material changes in internal control, or mine-safety events requiring disclosure.
Important Facts for Investors to Verify
- Confirm the corporate identity and name-change history because the filing is issued by New Jersey Mining Company, while the requested company is Idaho Strategic Resources, Inc.
- Verify production continuity, gold grades, recovery rates and realized gold prices, particularly in light of COVID-19 operating risks.
- Assess liquidity against scheduled debt maturities, including $309,139 of notes payable due within 12 months and the company’s reliance on future operating cash flow or additional financing.
- Review the terms, collateral and potential dilution from the $885,000 convertible-debt issuance, including the potential conversion of approximately 4.917 million shares.
- Evaluate customer concentration and settlement-price exposure because all reported gold sales receivables were due from H&H Metal.
- Confirm the amount of PPP forgiveness ultimately received and the accounting treatment of the PPP loan.
- Reconcile non-GAAP cash-cost and AISC measures to GAAP results and assess the effect of rising cash costs per ounce.